QDROphile

Delay opens the door to unexpected and unintended negative (mostly for the alternate payee) consequences. The answer to your specific question: It depends. Worst case: Former spouse gets nothing.

The practical answer is that the one who wants the benefit needs to take the action. However, as part of the divorce proceeding it may be agreed or ordered that a particular person has the responsibility for carrying out the formalities of implementing the division of the retirement benefits. Common practice is that the alternate payee prosecutes the QDRO. See sentence #1.

Forget about the court order and enrollment timing for a moment. Is the employee eligible to enroll the children under the plan and has the employee requested enrollment? QMCSOs and other orders are usually a bypass of the deadbeat employee. If the employee is requesting the coverage, those direct legal compulsions may be superfluous. There may be a role for them as an exception to the plan’s rules relating to timing of enrollment.

Whose error activated the record keeper’s election function? When did the activation occur relative to instructions for elective deferrals? Describe how the instructions to the payroll system election function were presented to participants and eligible employees. For example, were the instructions to use the payroll election function in the SPD? Elsewhere? What else are employees instructed to do through the payroll system? What record keeper functions were officially usable by participants and how was the sanctioned use presented? Investment instructions? Who is the plan administrator and what role did/does the PA have in any of the policies and communications relating to participant elections of all sorts (e.g. beneficiary designations)?

What is the default to account for FICA taxes? The lawyers for the parties to the divorce are unlikely to know the rules and will be baffled by the taxation being heavier on the participant when they think they have ordered an “even” split. I have no love for the compensation packages of executives, but I think people should get the results that they expect. And plan administrators catch grief when the exec wakes up to the asymmetry too late to renegotiate. And, yes, I have seen this in real life.

I never bought into it, but no one appointed me to the bench. QDROs are an exception to the anti-assignment rules. If those rules do not apply, then you do not need a QDRO to divide the benefit, so the QDRO rules do not apply. That does not mean there are not issues with dividing the benefits, and some QDRO concepts are relevant, but that does not mean the QDRO rules should be applied directly. The inquiry is double digits old. I did not check the link. My interest is also double digits old. I may have missed the point.

See ESOP Guy. And the plan document should state the legal requirement.

A most requests for creative solutions amount to wanting to be told that the illegal proposition is acceptable.

To focus solely on your "equitable interest" question, there is nothing resembling a spousal equitable interest under a 401(k) plan, as you may understand "equitable interest" under state law, such as spouses have an equitable interest in a 401(k) plan in a divorce proceeding (meaning that 401(k) assets can be awarded to a spouse as part of the division of marital assets). Subject to some limited rights that may be, but are not required to be, provided pursuant to plan terms, as far as the 401(k) plan is concerned, the interest of a spouse under a 401(k) plan is limited to being the designated beneficiary in the event of death of the participant unless the spouse consents to having someone else named as designated beneficiary (and maybe a related right to consent to loans from the plan). The question becomes more complex under pension plans; that is another discussion. As for equitable interests of spouses under state law, the federal law, including law relating to QDROs, preempts state law, subject to QDRO law expressly generally respecting the substance division of the 401(k) assets with respect to spouses (and former spouses) under state domestic relations law.

This is serious, complex stuff, including the possible application of federal and state securities law. The employer needs to engage competent legal advisers.

The plan document matters. It is a contract. If the contract says that some amount will be put in some account by some date, then it is a breach of contract not to do so. This would most likely be an issue if the participant directs the investment of an account, as a practical matter, and not as a legal right in an unfunded (for tax purposes) plan. If the accrual is only a bookkeeping accrual, with a bookkeeping investment rate, then the plan usually will not speak about contributions. Instead, it will speak about accrual credits. The timing of a legal right to an accrued benefit (or an incremental accrual) is then a significant factor in timing of tax liability and and movement of actual funds is not relevant.

While (a) your question might be zeroing in on the answer: Whenever the plan documents say contributions must be delivered; (b) your question suggests a misunderstanding about unfunded and funded 457(b) plans for nonprofits and the tax consequences. Apologies if I have misapprehended.

Your questions all relate to state/local law and procedures and require evaluation by someone, probably a lawyer, knowledgeable about Delaware domestic relations law and court procedures. The federal law that is relevant to the retirement plan(s) requires that the order be an order under state domestic relations law. The federal law does not address matters such as signatures of the parties to the domestic relations proceeding. What is required for the order to be issued under state law depends entirely on state law.

Fairness is a relevant topic, especially in areas touched by tax policy, where subsidies create economic distortions. Distortions can be viewed as unfair to an individual or group or viewed as beneficial to the larger society, based on some notion of values of the political winners. The unfortunate history of subsidizing employer-provided health benefits is an issue that is a deeper level in the same mine shaft as this topic of employer subsidies of marriage and children. There are more overt examples of subsidy or penalty of marriage and children. The institutions and culture created by tax subsidy for employer-provided healthcare are now a big factors in the political arena in the debate about how best to make health care available and affordable. It is a shame that the elements are not recognized for what they are so they can be objectively evaluated in instead of manipulated by emotional appeals. The fight did not start with jpod's observations.

And, as my favorite priest once said, “People in Hell want ice water, too.”

Pay attention to applicable HSA contribution limits. No comment on the essential compliance question.

From a federal QDRO law perspective (also the retirement plan's perspective), it is possible depending on the nature of the plan, the attitude and sophistication of the plan administrator, and the actual terms of the divorce judgment. There is a lot to be done behind the claim to get it in proper position, probably including getting a domestic relations order that satisfies the QDRO requirements, which will be determined by state law. Generally no action will be taken by state courts with respect to a concluded divorce proceeding after the death of one of the parties, but never say never. The domestic relations order is merely in aid of carrying out the terms of the divorce judgment, which is one reason why those exact terms are critical. The plan administrator may have views about the original terms as well for purposes of accepting and effecting a domestic relations order. The divorce judgment is also a domestic relations order, but I use the term in this case to refer to another domestic relations order directed specifically at the retirement plan and benefits. I have also assumed that the divorce judgment would not satisfy the QDRO requirements.

Sorry to be unable to read between the lines, but did the plan treat the distribution of the $100K as a taxable distribution to the participant? I infer the negative. Voluntarily directing delivery of a distribution to a specified payee is not a problem, although it is a courtesy not required of the plan. Failure to account for a distribution properly on Form 1099-R is a problem. My first thought is to issue a corrected Form 1099-R. The participant will have to amend the 2018 tax return if it has been filed based on a Form 1099-R showing a distribution of $60K instead of $160K.

Benefits issue. Railroad retirement benefits are unusual, so general knowledge about ERISA QDROs might not serve well. Ask the question of the RRB to start. Divorce/State Law. You will not get any of former spouse’s RR benefits without a domestic relations order that modifies or supplements your divorce property awards. State law varies. Generally, revisiting divorce settlements/dispositions is proscribed or disfavored, especially after death. Exceptions apply. You will need competent advice about applicable state law concerning the circumstances.

In addition to Doc Ument's comments, I would embellish the following one: "That is why the attorneys who structured this deal should have read the document before proceeding with the transaction." Even if the document did not provide for what was to happen under the circumstances, the plan document could have been amended before closing to provide for the desired outcome (and forced the parties to think in advance about what the desired outcome should be). Corporate transactional lawyers and advisers have a very bad habit of not including someone with ERISA expertise in the structuring and execution of a sale/reorganization, or at least not doing so in a timely manner before all that can be done is either hold your nose or pick up the pieces as well as possible. Also, the mentality of not thinking beyond pre-approved documents contributes to the problem. A pre-approved document is almost certain to fail to serve the needs of complex corporate organizations and transactions. They are designed based on LRMs and IRS approval rather than the tax-qualification needs of the employer. Even the exercise of filling out the adoption agreement of pre-approved documents is usually a missed opportunity to think deeply about what the employer(s) is/are all about and what they are trying to accomplish both by way of benefits and by way of administration. Adopting a benefit plan has become an exercise in buying a mass-produced commodity, designed as a loss-leader for the business of selling investment management services. It is not surprising the a lot gets lost in the process of both design and implementation. Cheaper, yes. But sometimes there is a painful lesson about getting what you pay for.

They exist, but not in the traditional retail 401(k) menu-driven marketplace (including a "brokerage window" as one of the menu options). I agree with ESOP Guy that you are unlikely to have options available despite legality as a retirement plan investment. It has nothing to do with employer securities, as such.

Covered call options are permissible, but standard trust terms might not provide for them and the 401(k) investment product might not allow them, in part because they (the products) compensate the provider at a low margin and options are usually not “push the button” standard transactions. Ask the provider if the arrangement is within the brokerage window menu. Shame on the employer and the fiduciary if the employer can even find out what a participant chooses as investments.

The AP needs to file a claim for benefits in order to get benefits to which the AP is entitled. The information provided doe s not assure that there was a QDRO or that the AP was entitled to anything. It also does not allow an answer to the "Who is wrong?" question, although it appears, with only imagined doubt, that the participant is not involved.

We could start a new thread to recount stories about what happened when the specter of prohibited transactions was made apparent to unsuspecting partygoers. I have been dismissed from a transaction or two. I have also had others angrily walk out of the room. I have also testified before a federal grand jury. It turns out that what we ERISA practitioners know as certain prohibited transactions are also prohibited by the U.S. criminal code.

FICA issues are not the greatest misses in JamesK’s assertions. “gave back” compensation should be explored in light of the constructive receipt doctrine, as suggested by ESOP Guy.